Owning a home is one of the primary aims in life for most people. Many end up spending a major portion of their income and lifetime savings in building or buying a home. People with a healthy financial background can afford to buy a property with convenience from their income. But a majority of them require taking external assistance initially to do so. While some take the step of borrowing money from informal sources, many others take the reliable step to get a home loan offered by reputed banks.
Borrowing from banks to buy or build property is considered to be the safest and convenient way. However, there can be certain disadvantages as well, one of the most common ones being high interest on home loans. Home loans are one of the biggest liabilities that one can have, and it is important to carefully approach such a hefty commitment. This would go a long way in managing your finances well and prevent you from becoming insolvent. Below are 6 effective and clear-cut strategies to use right from the moment you decide to take a home loan.
Start with a larger down-payment
When it comes to taking any kind of a loan, it is best to pay a larger down payment. It reduces the amount and burden of paying back the money that you haven’t even earned yet. Even if you face a problem at the moment, consider paying more initially. If you generally run on a tight monthly budget, plan your next 2-3 months ahead of time. Reduce your unnecessary expenses and try not to run out of your emergency fund.
Try to avoid taking a loan against a low EMI
When you pay a higher EMI, your interest reduces significantly as compared to a loan taken against a lower EMI. Also, your loan repayment tenure becomes shorter which is always a relief. Often, people opt for a low monthly EMI that will not put pressure on their resources. But the truth is, by the end of their repayment period, they end up paying a lot more than they realise which is quite unfortunate. So, if possible, try and commit to a decent EMI plan which you can afford but also see if you can reduce your loan repayment tenure.
Consider paying more when you can
Often, you may have more money than you normally have. That could be because of lesser expenses during a particular month. So, consider paying more than the EMI amount when you can. It will go a long way in reducing the burden of a home loan on you. Because, on the flip side, there may also be times when you are not able to pay the EMI because of unprecedented expenditures. Try to see what you can do to maintain the balance.
Increase the Interest rate if you can pay more than before
At any point, you may turn out lucky and earn more than before. So, use it to pay more EMI. This will significantly reduce your tenure as well as the overall interest that you’d end up paying otherwise. The goal is to finish repaying your loan as soon as possible. But always track your expenses and don’t commit to an EMI amount that could potentially affect your daily life. Repayment may be your priority but along with that, it is crucial to not put too much burden on your monthly budget.
If there’s an option, make regular prepayments
In the initial few years, you actually pay more towards the interest and less towards the principal amount. Whenever you can, try not to miss any prepayments on due dates. The sooner you finish your prepayments levied towards interest, the better it would be for you.
Transfer home loan balance
If you feel that it would be better to transfer your home loan balance to another bank, go for it. Especially if you are not able to afford the current interest rate and if there is no way that the bank would reduce it, you can always look for another bank charging lesser interest and transfer the loan balance. Doing this will ease your repayment process.
We hope the above tips provided you with some helpful insights and will help in the long run. If you are thinking about taking a home loan, know that it is a serious commitment. If you approach the decision by keeping in mind the above-mentioned points, you will surely make the most out of home loan facilities. Also, ensure you keep checking out our blog to read helpful articles like this one and more.
